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An Assessing Officer (AO) can refer the valuation of immovable property to a Valuation Officer (DVO) under the Income Tax Act, 1961, primarily in the context of capital gains taxation or income assessment. The reference is made to ascertain the Fair Market Value (FMV) or evaluate whether the valuation claimed by the assessee aligns with the provisions of the Act.

Statutory Provisions Permitting Reference to DVO

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1. Section 55A – Determination of Fair Market Value (FMV)
   • The AO can refer to the DVO for valuation of a capital asset, including immovable property, in the following cases:
     • Clause (a): When the assessee’s FMV (based on their own valuation report or claim) appears to be less than its actual FMV.
     • Clause (b): In other cases where:
       • (i) The AO believes that the FMV of the asset exceeds the declared value by more than a prescribed margin.
       • (ii) Such a determination is necessary, considering the nature of the asset and other circumstances.
2. Section 50C – Stamp Duty Value as Deemed Sale Consideration
   • If the stamp duty value (determined by the state authority) of an immovable property is greater than the actual sale consideration claimed by the assessee, the stamp duty value is deemed the sale consideration for computing capital gains.
   • Reference to DVO:
     • If the assessee disputes the stamp duty value, the AO must refer the case to the DVO to determine the FMV.
     • The DVO’s valuation report will then be used to compute the capital gains.
3. Section 142A – Estimate of FMV for Income from Other Sources
   • This section empowers the AO to refer to the DVO for estimating the FMV of any property (not limited to capital assets) in cases where income under Section 69, 69A, or 69B (undisclosed income) is being assessed.

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Conditions for Reference to DVO

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• Existence of a Dispute:
  • The AO must have reasonable grounds to believe that the declared value does not reflect the true FMV or the stamp duty valuation exceeds the sale consideration.
• Preceding Evidence:
  • The AO can refer the matter if there are discrepancies in the valuation claimed by the assessee or a third-party valuation authority (e.g., sub-registrar for stamp duty purposes).
• Timeliness:
  • The reference should be made during the assessment proceedings and before finalizing the assessment order.
• Mandatory Reference under Section 50C:
  • When the assessee objects to the adoption of the stamp duty value, the AO is required to make a reference to the DVO.

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Judicial Precedents

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1. CIT v. Gauranginiben S. Shodhan Indl (2014) [Gujarat High Court]:
   • Reference to the DVO under Section 55A is valid only if the AO has concrete reasons to believe the valuation requires verification.
2. Smt. Monica Chattopadhya v. ACIT (2021) [ITAT Mumbai]:
   • The AO is obligated to refer the valuation to the DVO when the assessee disputes the stamp duty value under Section 50C.
3. Virendra Natwarlal Jariwala v. DCIT (2021) [ITAT Surat]:
   • Amendments to Section 55A are prospective, and references made under amended provisions for earlier years are invalid.

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Steps in the Reference Process

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1. Initiation by AO:
   • The AO identifies the need for valuation based on discrepancies or disputes in the FMV or stamp duty value.
2. Referral to DVO:
   • A formal reference is made under Sections 50C, 55A, or 142A, as applicable.
3. Valuation by DVO:
   • The DVO inspects the property, collects relevant data, and prepares a valuation report.
4. Consideration by AO:
   • The AO uses the DVO’s report to finalize the assessment. If the AO disagrees with the DVO’s findings, they must provide clear reasons.

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Key Points for Taxpayers

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1. Challenging Stamp Duty Valuation:
   • Taxpayers can dispute the adoption of the stamp duty value as deemed consideration under Section 50C and request a DVO reference.
2. Representation Before DVO:
   • Taxpayers have the right to present evidence (e.g., valuation reports, market data) during the DVO’s inspection.
3. Accuracy of Valuation:
   • Maintaining proper records and obtaining independent valuations can help mitigate disputes.

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In summary, an AO can refer immovable property to the DVO under specific circumstances, primarily to resolve disputes about FMV or stamp duty valuation. The process ensures that assessments are conducted fairly, balancing both taxpayer and revenue interests.